As something of a squishy centrist neoliberal, I’ve long been uncomfortable with the populist attack Democrats have been preparing to unleash on Mitt Romney as a job-destroying corporate raider. So imagine my surprise when Newt Gingrich unleashed it instead, alleging that as a businessman Romney “looted” corporations and smiling quietly as his nominally independent super PAC released a 27-minute documentary castigating Romney and his old company, Bain Capital, as “corporate raiders.”
Romney and his allies characterize these complaints as an attack on capitalism. His GOP critics naturally deny that—just as his Democratic ones will if he wins the nomination. Indeed, the Gingrich-tied documentary, King of Bain: When Mitt Romney Came to Town, explicitly opens with an homage to free-market capitalism as the bringer of all good things. The idea is to build a distinction between the good kind of businessman, the one who launches and grows firms, creating new products and jobs and opportunities, and the evil, Romney-style businessman, who makes millions by raiding and looting.
Superficially, this appears to be a fair distinction. Coming up with an idea, raising funds, building a factory, and beginning to sell products is one, often admirable, way to get rich. Undertaking a leveraged buyout of an existing firm, shutting down a bunch of its plants, reorganizing it, and then flipping the restructured entity to new owners is very different. One creates jobs, one kills them. One is noble, the other squalid. One builds firms, the other loots them.
But as is so often the case, the reality is more complicated. Almost every successful business career is built on the ashes of doomed factories, pink-slipped workers, and towns laid to waste.
Eastman Kodak and the once-thriving community of Rochester, N.Y., that it supported, for example, have been driven to ruin not by predatory private equity firms but by simple competition. The drivers of that competition—the digital photography industry—are classic entrepreneurial “good guy” capitalist job creators. And yet they destroyed jobs even as they created jobs. My neighborhood growing up was filled with photo developers and copy shops, now all gone. Apple and Google look like job-creating good guys to Americans, but from the vantage point of Espoo, Finland, or Waterloo, Canada, they’re destroying Nokia and Research in Motion. Radio, broadcast television, cable, and the Internet all count as technological advances that have helped the economy and improved America’s quality of life. But they’ve harmed newspapers and led to endless rounds of publishing-industry layoffs.
The art of the leveraged buyout and the private equity restructuring is, needless to say, different in many ways from the art of innovation. But they don’t differ in their destructive potential.
And while layoffs and closures are devastating to families and households, restructuring troubled firms is often the best way to preserve jobs and shareholder value in the long run. A poorly executed leveraged buyout, such as the Sam Zell takeover of Tribune that led to huge cuts and bankruptcy, helps no one. But there are better LBOs, and nobody seems to deny that Mitt Romney ran Bain well. For an underperforming company, painful restructuring now is generally the alternative to even more painful restructuring down the road.
All that said, while I’m happy to defend the layoff business as a legitimate and even useful element of a dynamic modern economy, I’m sure glad it’s not my job. Normal people, if put in a position where layoffs are necessary, find them to be emotionally arduous in the extreme. I wouldn’t want to be the guy who takes over companies and shuts down operations for a living, and I don’t think I’d want to be friends with that guy. It seems like a job only an emotionally unbalanced jerk would want, hence Up in the Air. A major innovator such as Apple does end up causing layoffs at rival firms. But no one at Apple ever has to feel responsible for those layoffs. To walk into a dying factory or doomed corporate office and actually fire people, you need to be pretty callous.
That’s perhaps the most sensible lesson to draw from Romney’s Bain tenure. To spin that callousness in the most positive way, making big calls in the White House requires a certain level of moral courage verging on callousness. In a nation of more than 300 million people, it’s difficult to advance the national interest without making some people suffer. America is beset by parasitical rent-seekers of various kinds, and President Obama’s deal-cutting instincts arguably exacerbate the problem. Maybe there are some boils that need lancing, some people who need to feel the pain. If it takes a village to raise a child, maybe it takes an asshole to govern a country.
On the other hand, politics isn’t business. Helping retired people or badly maimed veterans with their health care needs isn’t “efficient.” If you were a businessperson, you’d do anything to keep those veterans out of your hospital. It’s not the job of a businessman to feel sad about the consequences of cutbacks for your marriage, your employees, your grandma, or your community. But it should be the president’s job. The inherently destructive nature of a dynamic market economy means that lots of people are suffering on any given day thanks to forces beyond their control. Romney’s strength is that he understands those forces better than anyone in the race, but his weakness is that he doesn’t understand the suffering.